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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 12, 2013

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The upcoming holiday season brought minimal changes for mortgage interest rates despite statistical signs of a housing recovery.

Mortgage interest rate reports provided by show very little movement for the week ending Dec. 12, 2013. The 30-year fixed-rate mortgage decreased three basis points from 4.3 percent to 4.27 percent this week. The 15-year FRM shifted downwards from an average of 3.26 percent to 3.24 percent. The 5/1 adjustable-rate mortgage also decreased minimally, dropping from 2.75 percent last week to 2.72 percent this week.

The stagnant report is normal for the holiday season according to Greg Cook, a first-time home buyer specialist. The limited amount of economic data available equates to minimal mortgage interest rates changes.

However, he did expect the rates to show some indication of the improved employment in the country.

“That rates are even a little lower is somewhat of a surprise given the strength in employment numbers issued last week,” Cook said.

Despite the recent slowdown in mortgage interest rates, fixed rates have changed significantly in the past year. Last year at this time, the 30-year FRM was 3.32 percent and the 15-year FRM averaged 2.66 percent.

The large changes seen in the fixed-rate market were non-existent in the adjustable-rate market.

Mark Feder, president of Pacific Home Mortgage Funding, said that competition in the lending market has kept adjustable rates stable. One to two years ago, most lenders did not want to offer adjustable rates because they had a poor reputation. Now that fixed rates are nearly a percentage point higher, adjustable rates are both being offered more by lenders and requested more by consumers.

Whether or not a borrower chooses an adjustable or fixed rate, the cost of a mortgage loan has increased in the past year, driving some borrowers out of the market.

In the San Diego area that Feder works, he sees young borrowers struggle to afford the homes they desired before the recent increase. Even with moderate pay raises, entry level borrowers are being priced out of homes ranging from $250,000 to $300,000. The lending situation is not predicted to improve in the coming year.

“Next year it will be tougher for them to qualify and afford mortgages,” Feder said.

Another burden for first-time and/or disadvantaged borrowers is the increasing cost of an FHA home loan. Feder has a problem with this product, saying that although it opens up homebuying to more consumers, it will cost them more in the long-term.

This is partly because of a recent rule change made this past June. The FHA passed new rules that require borrowers with a down payment of less than 10 percent to pay mortgage insurance throughout the course of the loan. If borrowers provide a down payment greater than 10 percent, they still have to pay for mortgage insurance for 10 years.

In the private market, most borrowers pay for insurance for about five years, reducing the overall cost of the mortgage loan. Feder said this FHA charge, which is labeled as mortgage insurance, is really just a usurious interest rate charge, but because they are a government organization, they get away with it.

He said the FHA believes, “we will take the toughest loans, but we will charge an arm and a leg.”

Although new buyers might face adversity, on the whole, the housing market has strengthened in 2013. Several recent reports validate this belief.

First, foreclosure rates are at their lowest level since before the housing crisis. According to RealtyTrac, new foreclosure filings dropped 15 percent to a total of 113,454 in November, which is the lowest number since December 2006.

Feder said this finding shows that the recession is almost 85 percent over.

The second sign of an improved housing market is the increase in individual mortgage debt. The Federal Reserve found that outstanding single-family mortgage debt increased for the first time since since 2008.

The confidence from consumers and lending institutions shows that a legitimate and real recovery is occurring, Feder said.

“There are more people willing to borrow more money and people willing to lend more money,” he said.